Glossary

Crowdfunding

The practice of soliciting financial contributions from a large number of people especially from the online community. Crowdfunding activities are generally intermediated by crowdfunding platforms. Read more at What is crowdfunding

Donation crowdfunding

A form of crowdfunding in which the contributors don’t have any expectation of financial returns, instead they are compensated with immaterial benefits (acknowledgements, special mentions…). The typical target crowd are philanthropists or avid fans. They are driven more by intrinsic motivations rather than investing strategies. Material rewards could be present as well, but they have just symbolic meaning.

Reward crowdfunding

A form of crowdfunding in which contributors receive rewards for their contributions. There are three categories according to the benefits the contributors receive: sponsor, pre-selling and reward based crowdfunding. In the sponsor campaigns the contributors gain visibility in exchange for their financial support; in pre-selling operations the contributors have the right to receive the product before it is sold on the market; in the general reward campaigns the financers receive some kind of benefits, either monetary or not. The target crowd is the same as for the donation model.

Debt crowdfunding

A form of crowdfunding in which the contributors provide support in the form of a loan with expectation of financial return. They can receive interests at the end of the time loan (traditional model), or an agreed share of the profits of the firm (revenue sharing model). The target crowd are investors and entrepreneurs. Debt crowdfunding is further divided into peer-to-peer (P2P) lending and business loans.

Equity crowdfunding

A form of crowdfunding in which the contributors receive equity in the entity in return for financing, i.e. the contributors are compensated with shares in the issuing company. Hence the contributors become shareholders of the company, with the rights and duties deriving from this. The target crowd consists of investors and businesses of various sizes.

Minority shareholders’ agreement

An agreement that supplements the constitutional documents of the company. The contents of individual shareholders’ agreements vary, but they are commonly used for regulating the ownership and voting rights of the company’s shares, management of the company, dispute resolution, and protection of the competitive interests of the company.

Portfolio diversification

A technique of risk management which involves owning multiple investments in order to diversify the risk through a wide variety of assets, both in terms of quality and quantity. The rationale of diversification is to reduce non-systematic risk in a portfolio in order to cover the poor performance of some investments with the good performance of others.